The changing economic and investment market environment challenges the real estate market. Transaction market has been active so far, but a clear decrease in volumes is expected in all property sectors. The deteriorating economic situation and the cost pressures of companies are reflected in the office and retail rental markets, where vacancy rates are expected to increase. In the residential market, however, the uncertainty is expected to strengthen rental demand.
The Finnish property market developed positively on almost all fronts in 2021: the transaction market was brisk, positive economic developments supported the rental market, and strong investment and rental demand boosted construction. Expectations for 2022 were also positive at the beginning of the year, until the war in Ukraine changed the outlook.
However, the war does not seem to have any immediate severe effects on the Finnish property market: the transaction volume for the first four months of the year clearly exceeds that of the previous year, and investor interest extends widely to various property sectors. However, the effects of the war will extend to the Finnish property market, at least indirectly, through increased uncertainty and a deteriorating economic outlook. Over time, the changing economic and investment market environment will be reflected in both real estate investment demand and the space needs in different property sectors.
According to the statistics of KTI, the transaction volume in the Finnish property market amounted to €7.0 bn in 2021. The volume increased by 24% from the previous year, and by 10% compared to 2019. Transaction activity was especially high in the latter half of the year, when Q3 and Q4 transaction volumes reached €2.1 billion and €2.2 billion, respectively. Also the number of transactions increased markedly: in 2021, approximately 340 property transactions exceeding one million euro were carried out, compared to 260 transactions in 2020.
The largest transaction of the year was the acquisition of Kielo’s office property portfolio by Castellum for €640 million. The portfolio comprised 22 office properties in the Helsinki metropolitan area, Tampere, Turku, Jyväskylä and Lahti. The second largest transaction of 2021 was completed by CapMan’s new residential property fund, who bought 1,854 rental apartments from ICECAPITAL. The transaction price amounted to over €500 million.
Residentialthe most traded property sector
Residential properties and portfolios were the most traded property sector in 2021, accounting for 33% of the total volume (€2.3 billion), followed by office properties (29%), industrial properties (15%) and public use properties (13%). Retail property sector has suffered the most from the pandemic, and the volume of retail property transactions decreased to some €700 million in 2021, corresponding to approximately 10% of the total volume.
Share of foreign investors amounted to54%
International investor interest in the Finnish property market has remained strong. In 2021, foreign investors completed large transactions in all main property sectors and accounted for 54% of the total volume. In total, foreign investors acquired properties worth €3.8 bn, while their sales totalled €1.8 bn in 2021. About half a dozen new foreign property investors entered the Finnish market during the year. Over 60% of foreign investors’ investments were originated from other Nordic countries, mainly by operators who have their own local organisations in Finland. Of the domestic property investor groups, property funds were the most active buyers, accounting for 29% of the total volume.
More detailed information and analysis on property transactions in Finland can be found in the KTI Transactions information service. For more information, contact: Mikko Soutamo (mikko.soutamo(a)kti.fi, +358 50 548 0480) or Olli-Pekka Virkola (olli-pekka.virkola(a)kti.fi, +358 50 330 5287).
The rapid recovery of the economy and the gradual return of everyday life towards that of normal times are reflected in the Finnish property markets. The transaction market remains active, construction volumes are growing, residential rental demand is picking up and gradual recovery is also expected in the commercial property rental markets. Transaction volume of the first three quarters amounted to €4.7 billion, which is about half a billion higher than in the corresponding period in 2020. Residential and offices are the most traded property sectors.
Transaction volumes in the Finnish property market remain relatively low due to the restrictions and uncertainty caused by the pandemic. However, the conditions for a recovery in the transaction market are good: there is plenty of capital looking for investment targets and low interest rates support property investment. The post-pandemic use and needs of business premises are subject to great uncertainties, which weighs on the commercial property rental market. Domestic and international capital is increasingly being channeled into rental housing investments. Increasing supply and a drop in demand due to the pandemic are reflected in the residential rental market as a slowdown in rental growth and an increase in tenant turnover.
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